IFX Market Report: Wednesday 1st September 2021

In a rare turn of events, the Euro exhibited some vigour yesterday, making subtle advances against the Pound. After Federal Reserve (Fed) Chairman Jerome Powell stressed there was little need to rush into an interest rate hike once it had completed its quantitative easing programme, The Euro has become one of the better performing G10’s. It is well known that the European Central Bank (ECB) is expected to raise interest rates well behind the Bank of England (BoE) and Federal Reserve, perhaps only in 2024. This fact in recent months has been the “dynamic that has offered support to the Dollar and Pound against the Euro over the course of the past year”. But with the Fed’s future actions unclear, there could be more room for Euro upside.

In regard to monetary policy, Klaus Knot Governing Member of the ECB said, “inflation levels in the Eurozone had risen to the level that warranted an immediate slowdown to stimulus, preparing a return to pre-crisis policy settings”. These comments followed the latest inflation data released yesterday, showing Eurozone inflation is at a 10 year high. Fellow ECB Governing Member Robert Holzmann “meanwhile said the ECB should soon start debating how it will phase out its pandemic-era stimulus. We are now in a situation where we can think about how to reduce the pandemic special programmes - I think that’s an assessment we share”. Experts concur these comments suggest the ECB might be prepared to move away from its ultra-dovish stance, and this can only be supportive of the Euro's outlook.

Cable had another flat session on Tuesday, opening and closing only 7 pips apart. GBPUSD opened the day at 1.3769 and closed at 1.3762.

GBPEUR made a loss on Tuesday. The pair opened at 1.1665 and closed at 1.1658.

Despite making an impressive start to the day, EURUSD dropped off as the session proceeded. The pair opened at 1.1827 and closed at 1.1805.

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